Nobody Knows (Yet Again)

Key Takeaways:

• Embrace Uncertainty in Forecasts and Decision Making: Marks emphasizes that the future is inherently unknowable. He argues that despite all our models, predictions remain speculative because countless complex, unquantifiable factors are in play. Rather than waiting for perfect certainty, one must act based on logical reasoning and the best available probabilities, while accepting that forecasts are inherently limited.
• Risk of Inaction Versus the Perils of Certainty: In times of unprecedented upheaval—whether it’s a financial crisis, a trade war, or unexpected political moves—the decision not to act is itself a decisive act. Marks warns that insisting on absolute confidence before making moves can lead to missed opportunities, while rigid conviction in any forecast can ultimately backfire when conditions change suddenly.
• Economic Actions Involve Cascading, Second-Order Effects: Using the example of tariffs, Marks points out that economic interventions trigger multiple layers of unintended consequences. For instance, while tariffs might be intended to support domestic manufacturing, they often lead to price hikes, reduced consumer confidence, retaliatory measures by trade partners, and even broader disruptions in global supply chains. This complexity means that even well-intentioned policies can produce outcomes far removed from their original aims.
• The Trade-Off Between Immediate Costs and Long-Term Adjustments: While protectionist policies (like tariffs) might offer some long-term benefits by protecting certain industries or ensuring fairer trade, they also impose immediate economic pain—such as higher prices for consumers, potential job losses in related sectors, and risks of inflation. Marks underlines that while some favorable outcomes might eventually materialize, they come at the cost of short-term economic disruptions and a prolonged period of adjustment.
• Global Interdependence and the Fragility of Economic Stability: Marks’ commentary extends beyond domestic policy to reflect on how deeply interconnected today’s economies are. The decades-long benefits of globalization—like lower prices and higher living standards thanks to comparative advantage—can be quickly undermined by policies that foster isolationism or short-term, protectionist impulses. This reinforces the idea that when global trade norms are upended, the ripple effects can weaken longstanding economic stability and international alliances.

Select Highights:

• In fact, I consider the phrase “analyze the future” one of the great oxymorons. The future has not yet been created, and it’s subject to millions of complex, unquantifiable, and unknowable factors that will always be in flux
• There’s absolutely no place for certainty in the world of investing
• If anyone thinks they know what a given tariff rate will be three months from now, I’ll bet good money they’re wrong
• While it’s the importer who pays the tariff at the border, the cost is usually passed on to the ultimate purchaser of the goods, the consumer
• Conrad DeQuadros of Brean Capital, considers corporate profit margins to be the best leading indicator of recessions. When margins come under pressure, corporations stop making new investments and engage in layoffs and other forms of cost-cutting, often bringing on economic downturns
• Economics is the science of choices and is fraught with trade-offs
• John Maynard Keynes described economic activity as being fed by “animal spirits,”
• What will be the source of positive animal spirits in the environment that lies ahead?
• I have no interest in seeing the U.S. turn isolationist
• We can force countries that have depended on us for capital and other forms of assistance to look to China and Russia for these things instead
• To date, the world’s high opinion of the U.S. economy, rule of law, and fiscal solidity has allowed us to hold a “golden credit card,” where there’s no credit limit and no bill ever comes
• In other words, we’ve been able to live beyond our means, with the federal government spending more than it takes in via taxes and fees
• I’m left to wonder how much longer we can count on that golden credit card
• Japan exploited its advantages in producing autos, and the U.S. moved on to things in which it could achieve an advantage of its own. Isn’t that exactly the way things should work in a dynamic global economy?
• No one should rule out the achievement of some of the goals of tariffs listed above. U.S. manufacturing could increase, bringing new jobs and more dependable supply chains. Our treatment in world trade could become fairer. And the Treasury’s take could increase.
• This will be especially true as long as our workers are better paid, meaning most U.S.-made goods cost more than goods produced elsewhere

Takeaways: